LONDON (Reuters) – Global shares eased on Wednesday as optimism over the pace of recovery from COVID-19 that propelled markets to record highs was fizzling out in the face of more lockdowns in continental Europe.

European shares hit a two-week low before the pan-European STOXX index of leading companies recovered some lost ground to trade down 0.18%. Travel stocks were among the biggest fallers on the prospect of holidays abroad remaining a dream for now.

Paris and Frankfurt were weaker, with London edging up. U.S. stock futures pointed to a steadier start on Wall Street after Tuesday’s tumble.

“The mood is fairly fragile as all the optimism that characterised the push higher over the past two or three weeks in shares is starting to bleed away on talk of a European third wave and extensions of pandemic lockdowns in Germany and France,” said Michael Hewson, chief market analyst at CMC Markets.

The Ifo Institute said Germany’s extended lockdown is delaying recovery, cutting its 2021 growth forecast for Europe’s biggest economy to 3.7% from 4.2% previously.

“Coming on top of EU threats to limit vaccine supplies, it has created a reassessment of the glide path to any recovery. It was a big ask to get a return to international travel as soon as markets were pricing in,” Hewson said.

The IHS Markit euro zone flash composite purchasing management index rose to 52.5 in March from 48.8 in February in a surprise return to growth this month, as factories ramped up production at its fastest pace in over 23 years.

But the gathering pace of lockdowns in Europe and slow vaccine rollout could mean more subdued numbers in April, analysts said.

A 2% bounce in oil after hefty losses overnight was capped by the prospect of lower fuel demand because of continued lockdowns, though analysts said the drop should ease upward pressure on bond yields and diminish the “inflation scare” in markets recently.

“The rise in global yields observed over the past few months seems to have taken a break this week, as investors are probably awaiting new positive signals on the economic recovery,” UniCredit bank said in a note to clients.

Benchmark 10-year U.S. Treasury notes last yielded 1.6207% after reaching 14-month highs last week.

Inflation expectations declined in Britain, where consumer price inflation unexpectedly fell to 0.4% in February amid discounts in clothing.

TAX HIKES?

Wall Street tumbled on Tuesday on concerns about the cost of infrastructure spending and potential tax hikes to pay for President Joe Biden’s $1.9 trillion relief bill.

Still, the S&P 500 index’s 75% increase from March 2020 troughs represents the biggest rolling 12-month increase in the index since 1936, Deutsche Bank noted.

U.S. Treasury Secretary Janet Yellen said on Tuesday the U.S. economy remains in crisis from the pandemic as she defendeddeveloping plans for future tax increases to pay for the newpublic investments.

Federal Reserve Chair Jerome Powell told U.S. lawmakers that a coming round of post-pandemic price increases will not fuel a destructive breakout of persistent inflation. He meets with U.S. lawmakers again on Wednesday.

U.S. manufacturing data was due later on Wednesday.

Asian shares skidded to a two-week trough overnight and the dollar neared four-month highs.

MSCI’s broadest index of Asia-Pacific shares outside of Japan fell 1.1% to 675.81 points.

In currencies, the dollar index hit a four-month high of 92.608 against a basket of most major currencies.

The euro edged toward a four-month low below $1.1833 and traded as low as $1.1813.

Brent crude futures rose 2% to $62.13 a barrel, after tumbling 5.9% to a low of $60.50 on Tuesday. West Texas Intermediate (WTI) crude futures added 2% to $59, having lost 6.2% the previous day.

Safe-haven gold was higher at $1,732.5 an ounce.

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